Marilyn Barnewall – Liar Loans and the Thieves that Make ThemPage 3 of 4
As I pointed out in the first article linked above, politicians gain power for government by passing new regulations, and as a means of creating the need for new regulations, they ignorethe enforcement of existing regulations. That is precisely what has been done and is whatprecipitated the current crisis.The testimony of University of Missouri Professor William K. Black
presented to the Houseof Representatives Financial Services Committee, chaired by Congressman Barney Frank.Professor Black points to abdication of official responsibilities on the part of the MortgageBankers Association, the Securities Exchange Commission, the Federal Reserve Bank of New York, the Federal Reserve System, and various brokerage houses (more commonly known asinvestment banks) as the cause of the subprime mortgage problems that caused the fall in thehousing market which resulted in the failure of many independent banks in communitiesthroughout America. A general American economic crisis resulted.In essence, Professor Black
says existing regulations were ignored by everyone who knew about the subprime mortgage fraud
– the FBI reported the problem to the Congress in 2004and nothing was done about it. The result: the current drive for new regulatory control because the “old regulations didn’t protect us from this disaster.” The statement is a lie and,in and of its self, becomes a part of the fraud. Regulations on the books, had they beenenforced, clearly would have prevented the crisis had those regulations been enforced. You may not find the definition of “liar loans” palatable – who would? – but since they may be the basic reason why the American Dream is slowly being obliterated (though it’s certainly happening faster these days), you owe it to yourself to know what they are. As you read thedefinition, keep in mind that according to Professor Black “the average dollar lent on liarloans creates a loss ranging from 50 to 85 cents.” A liar loan is when stated income provided by the borrower is not verified by the lending bank. A false figure is can be inserted and not detected. An unemployed person may say, “Imake $200,000 per year.” No one checks to make sure the borrower is telling the truth.Often, the borrower is told ahead of time there will be no verification of stated income.In 2007, Lehman Brothers, an investment brokerage house that was creating mortgage- backed derivatives from liar loans mixed with “prime” (or quality) mortgage loans, becameone of the nation’s biggest providers of mortgages via three subsidiaries in various locationsaround the county who specialized in making liar’s loans. Did Lehman Brothers know? Of course they did.Congress has supported beyond reason two government-sponsored entities called Fannie Maeand Freddie Mac, purportedly to make home ownership possible for people otherwise unableto share the American Dream. If what we’re being told is true, please explain why Fannie andFreddie have only increased home ownership by 4 percent over the past 30 years. By contrast, between 1991 and 2008 (17 years) in the Netherlands and Italy, home ownership increased by 12 percent Lenders who worked for the liar loan mortgage companies often felt they weredoing a service to the community by making home ownership available to those who couldn’tfinancially qualify for a mortgage.